In the most recent analysis of our CRA data, the bank has learned there is a gap in lending in certain LMI areas in our residential portfolio. I am new to CRA, so these might be questions I should know the answer to but here we are.

Loans that we originate and sell on the secondary market the same day, do those count in CRA Residential lending? These are not recorded for HMDA purposes.

Targeted Marketing - The only in house product we offer is a HELOC, the terms and rates are not very competitive - it really isn't a focus for the bank. In order to fill some of CRA gaps, the bank wants to target these zip codes. My worry is that the product we are advertising is not very good so it may appear that we are purposely offering a less than desirable product so we don't get any interest. Thoughts?

So, your investor is making the actual credit decision on the loans you are selling?

See: https://www.govinfo.gov/content/pkg/FR-2016-07-25/pdf/2016-16693.pdf

Page: 48531

§ll.12(l)—2: Some financial institutions broker home mortgage loans. They typically take the borrower’s application and perform other settlement activities; however, they do not make the credit decision. The broker institutions may also initially fund these mortgage loans, then immediately assign them to another lender. Because the broker institution does not make the credit decision, under Regulation C (HMDA), they do not record the loans on their HMDA loan application registers (HMDA–LAR), even if they fund the loans. May an institution receive any consideration under CRA for its home mortgage loan brokerage activities?

This can get complicated. There's something called the Broker/Investor rule that determines who reports a loan origination when a third party buys the loan. If the third party has not made a credit decision before the closing, then the bank that originated the loan would report it. But if the investor reviewed the file and approved the credit before the closing, then the investor would report the loan origination and the originator would not report it, even if they also made the credit decision before the investor.